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Due diligence more essential in a challenging economy
A McKinsey survey of global executives completed this month shows that of its 2,056 participants, 51% believe that the world economy is improving. However, the report notes that 24% of respondents feel that the U.S. economy is moderately/substantially worse than it was six months ago, and globally, it is 15%. Approximately 38% indicate that their companies will increase workforces by the end of 2010, and 70% expect corporate profits to be higher than in 2009. Nearly all participants said that their companies pay greater attention to market fluctuations, have improved risk management programs and have implemented strong costs containment. More than half have changed the criteria for capital investment decisions, mainly by applying more rigorous due diligence.> |
Tracking industry's hot topics:
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Pending Equal Employment for
All Act would restrict consumer reports
Introduced July 9, 2010, the bill, HR 3149, would amend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against job applicants and employees for the purposes of making adverse employment decisions.
- Two in pari delicto cases may set precedence in auditor liability
The legal liability of auditors in detecting corporate fraud is being decided in two cases heard on September 14, 2010 in the New York Court of Appeals, potentially increasing the Big Four accountants' exposure to multibillion-dollar shareholder lawsuits for malpractice. In both cases, the court will rule whether auditors can rely on the legal doctrine of in pari delicto ("in equal fault") to reject claims for fraud allegedly committed by company insiders. The first case involves PricewaterhouseCoopers (PwC), which is being sued for failing to detect a bid-rigging and accounting fraud scheme at AIG. PwC won a dismissal of the suit in Delaware arguing that AIG shared the blame, because AIG employees were the perpetrators of the fraud that PwC failed to identify. The second case relates to protracted litigation by the bankruptcy trustee of the failed futures broker, Refco Inc., and is seeking damages from several of the firm's advisers and auditors, including Grant Thornton, KPMG LLP, PricewaterhouseCoopers LLP, Ernst & Young, LLP, Mayer Brown, LLP, et al.
- Securities & Exchange Commission released an agenda to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act
The SEC recently published its timetable for the implementation of the Dodd-Frank Act, due in July 2011. By the end of this month, the SEC plans to establish interpretive guidance for applicable auditing standards for the performance of audits of brokers and dealers, pending further rulemaking and PCAOB standards. Between October and December 2010, its proposals include regulations in the categories of oversight of investment advisors, hedge funds and other private funds, exempt offerings (including rules to revise the "accredited investor" standard), derivatives (issues with security-based swaps), clearing and settlement, credit ratings (such as establishing a new Office of Credit Rating), asset-backed securities, corporate governance disclosure including executive compensation, and municipal securities. Next year, the SEC will finalize and adopt the new rules, propose further regulations and report to Congress on its various studies and reviews. For the complete agenda, see http://www.sec.gov/spotlight/dodd-frank/dfactivity-upcoming.shtml.
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Diploma mills: SI case studies and history
In the past two months, three applicants for professional positions with our accounting firm clients claimed bachelor degrees which we discovered were from the following diploma mills: Bienville University in Baton Rouge, LA, Belford University, in Humble, Texas and Almeda University in Boise, Idaho. (As many as 500 resumes in LinkedIn, including those of a New York-based HR director and a CEO in the pharmaceutical industry, boast degrees from Belford University). Diploma mills often claim accreditation by fake accrediting agencies to attract more "students" and to make them appear legitimate. When checking degree claims, the most important step is to ensure that the educational institution is accredited by a U.S. Department of Education nationally recognized accrediting agency. However, it is important to note that not all unaccredited institutions of higher learning are diploma mills. A legitimate institution may be in the process of obtaining accreditation, may have lost accreditation due to financial problems or other factors, or chose not to participate in the accreditation process because it views it as an infringement of its religious, academic, or political freedom (seminaries and bible colleges are examples of such schools.) And there are certain law schools in California that are not required to have accreditation. Their graduates are permitted to take the California bar examination and, upon passing, practice law. Diploma mills are not a new phenomenon. Historical research suggests that the business of diploma mills has been lucrative since the mid- to late 1800s, when college and university degrees, especially in medicine, were highly envied. Although the FBI-led DIPSCAM operation in the 1980s put a dent in diploma mill activity, the lack of further action by law enforcement, lax or non-existent state laws, and the Internet helped fake degree peddlers to flourish. In the early 2000s, news of fraudulent degrees began making headlines regularly, implicating even top U.S. government officials. Laura Callahan, the Chief Information Officer for the U.S. Department of Homeland Security, was found to have claimed three degrees on her resume from a known diploma mill. Following Callahan's resignation, a U.S. government investigation disclosed that 463 of government employees listed degrees from unaccredited institutions, some of which were paid for by the government. And in 2006, the Associated Press reported that at least 135 federal employees held bogus degrees from a diploma mill named Saint Regis. According to the U.S. Secret Service, St. Regis customers included 350 federal government employees and 14 New York City firefighters, who had used the credentials to get promotions and raises. Diploma mills are rampant in many parts of the world. Australia has a deluge of candidates who admitted to have paid for phony medical diplomas. And sources in Kenya reported that most of its Parliament was found to be riddled with fraudulent degree claims. Many European, African, Far Eastern and Middle Eastern countries also are plagued by fake diplomas. Recently, law enforcement in Canada uncovered a widespread ring of counterfeiters who expertly replicated watermarks from university letterheads. In an ever-expanding global economy, the problem of foreign degree mills hits home, as many U.S. diploma mills have foreign connections.
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